McMoRan Updates Shallow Water Drilling Program

McMoRan said that the initial discovery well on South Marsh Island Block 223 (JB Mountain prospect) encountered significant intervals of hydrocarbon pay. The operator's engineering analysis indicates the well has the potential of producing approximately 90 million cubic feet of natural gas equivalents per day (Mmcfe/d). Initial production from the well will be limited until additional processing facilities are installed during the second half of 2003. Production commenced in June 2003 but sustained production rates have not been achieved. The well has recently been tested at a gross rate approximating 40 Mmcfe/d. On June 14, 2003, drilling of a second well at JB Mountain commenced. This development well has a total planned depth of 22,000 feet and is currently drilling below 6,200 feet.

Drilling of the Louisiana State Lease 340 (Mound Point Offset) well commenced during February 2003. The well was drilled to a total depth of 19,000 feet. Logging analysis has indicated significant intervals of potential hydrocarbon pay. The well is being completed for expected production in the third quarter of 2003. Engineering analysis indicated the well has the potential of producing approximately 65 Mmcfe/d.

The positive results from exploratory drilling at the JB Mountain and Mound Point Offset prospects are confirming McMoRan's exploration concepts involving the potential for significant hydrocarbon accumulation in large deep structures lying below reservoirs where significant production has already occurred in the shallow waters of the Gulf of Mexico. The JB Mountain and Mound Point deep-gas prospects are located in water depths of 10-20 feet in an area where McMoRan has rights to an approximate 80,000-acre area and is a participant in an exploration program which includes portions of OCS 310 and portions of the adjoining Louisiana State Lease 340. The program currently owns a 55 percent working interest and a 38.8 percent net revenue interest in the JB Mountain prospect and a 30.4 percent working interest and a 21.6 percent net revenue interest in the Mound Point Offset prospect. As previously reported, under terms of the program, the operator committed to fund all of the costs attributable to McMoRan's interests in four prospects, including the discovery wells at JB Mountain and Mound Point Offset, and will own all of the program's interests until the program's aggregate production from the prospects totals 100 billion cubic feet of gas equivalent (Bcfe) attributable to the program's net revenue interest, at which point 50 percent of the program's interests would revert to McMoRan. Two prospects were determined to be noncommercial and the operator has elected to reassign the acreage related to these prospects to McMoRan.

Plans for another well, the Hurricane exploratory well, have been completed and drilling is expected to commence in the third quarter of 2003. The Hurricane prospect, located on South Marsh Island Block 217 (which is part of OCS 310), approximately 2 miles northwest of the JB Mountain discovery well, will target intermediate sands seen in the JB Mountain well. McMoRan has recently entered into an agreement with the operator, subject to certain approvals, whereby the operator will fund all drilling costs of this exploration well and McMoRan will have an election at casing point to participate for 50 percent of the operator's interest in future activities on this well and the surrounding 9,500 acre area. Under this agreement, if McMoRan joins at casing point, McMoRan would participate in any production from this well immediately and the production would be excluded from the 100 Bcfe sharing arrangement described above. Other than the Hurricane prospect area, all remaining acreage in OCS 310/State Lease 340 will remain subject to the agreement whereby the operator funds all exploration and development costs and carries McMoRan for 50 percent of the program's interest until the operator has recovered 100 Bcfe from production. The operator will bear 100 percent of the drilling cost to casing point in the Hurricane exploration well. Elections by other participants may reduce this interest both before and after casing point.

McMoRan has exploration rights to approximately 336,000 gross acres in the Gulf of Mexico. The company has identified 20 high-potential, high-risk prospects, most of which are deep gas targets in the shallow waters of the Gulf of Mexico near existing production infrastructure. There are six near-term prospects outside of the OCS 310/Louisiana State Lease 340 area involving approximately $60 million of exploratory drilling costs. Plans are being considered to drill the prospects and are considering opportunities for others to participate in these operations which the company plans to pursue in the near-term.